Institute of Professional Education and Research (Bhopal)

BUSINESS ENVIRONMENT ASSIGNMENT # 1

Corporate governance
Corporate governance is "the system by which companies are directed and controlled". It involves a set of relationships between a companys management, its board, its shareholders and other stakeholders; it deals with prevention or mitigation of the conflict of interests of stakeholders. Ways of mitigating or preventing these conflicts of interests include theprocesses, customs, policies, laws, and institutions which have impact on the way a company is controlled. An important theme of corporate governance is the nature and extent ofaccountability of people in the business, and mechanisms that try to decrease the principalagent problem. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders, trade creditors, suppliers, customers and communities affected by the corporation's activities. Internal stakeholders are the board of directors, executives, and other employees. It guarantees that an enterprise is directed and controlled in a responsible, professional, and transparent manner with the purpose of safeguarding its long-term success. It is intended to increase the confidence of shareholders and capitalmarket investors. A related but separate thread of discussions focuses on the impact of a corporate governance system on economic efficiency, with a strong emphasis on shareholders' welfare; this aspect is particularly present in contemporary public debates and developments in regulatory policy (see regulation and policy regulation).

Principles of corporate governance

Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by openly and effectively communicating information and by encouraging shareholders to participate in general meetings. Interests of other stakeholders:Organizations should recognize that they have legal, contractual, social, and market driven obligations to non-shareholder stakeholders, including employees, investors, creditors, suppliers, local communities, customers, and policy makers. Role and responsibilities of the board: The board needs sufficient relevant skills and understanding to review and challenge management performance. It also needs adequate size and appropriate levels of independence and commitment Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing corporate officers and board members. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide stakeholders with a level
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of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.

NTPC
Indias largest power company, NTPC was set up in 1975 to accelerate power development in India. NTPC is emerging as a diversified power major with presence in the entire value chain of the power generation business. Apart from power generation, which is the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash utilisation and coal mining. NTPC ranked 341 st in the 2010, Forbes Global 2000 ranking of the Worlds biggest companies. NTPC became a Maharatna company in May, 2010, one of the only four companies to be awarded this status. The total installed capacity of the company is 36,014 MW (including JVs) with 15 coal based and 7 gas based stations, located across the country. In addition under JVs, 5 stations are coal based & another station uses naptha/LNG as fuel. The company has set a target to have an installed power generating capacity of 1,28,000 MW by the year 2032. The capacity will have a diversified fuel mix comprising 56% coal, 16% Gas, 11% Nuclear and 17% Renewable Energy Sources(RES) including hydro. By 2032, no fossil fuel based generation capacity shall make up nearly 28% of NTPCs portfolio. NTPC has been operating its plants at high efficiency levels. Although the company has 17.75% of the total national capacity, it contributes 27.40% of total power generation due to its focus on high efficiency.

In October 2004, NTPC launched its Initial Public Offering (IPO) consisting of 5.25% as fresh issue and 5.25% as offer for sale by Government of India. NTPC thus became a listed company in November 2004 with the Government holding 89.5% of the equity share capital. In February 2010, the Shareholding of Government of India was reduced from 89.5% to 84.5% through Further Public Offer. The rest is held by Institutional Investors and the Public.

At NTPC, People before Plant Load Factor is the mantra that guides all HR related policies. NTPC has been awarded No.1, Best Workplace in India among large organisations and the best PSU for the year 2010, by the Great Places to Work Institute, India Chapter in collaboration with The Economic Times. The concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through its expansive CSR initiatives, NTPC strives to develop mutual trust with the communities that surround its power stations.
Corporate Governance is a process that aims to meet shareholders aspirations and societal expectations. It is a commitment that is backed by the fundamental belief of maximizing shareholders value, transparency in functioning, values and mutual trust amongst all the constituents of organization. Its not a discipline imposed by a Regulator, rather a culture that guides the Board, management and employees to function towards best interest of stakeholders. In our Company, Corporate Governance philosophy stems from our belief that corporate governance is a key element in improving efficiency and growth as well as enhancing investor confidence and accordingly the Corporate Governance philosophy has been scripted as under: As a good corporate citizen, the Company is committed to sound corporate practices based on conscience, openness, fairness, professionalism and accountability in building confidence of its various stakeholders in it thereby paving the way for its long term success. We are making continuous efforts to adopt the best practices in corporate governance and we believe that the practices we are putting into place for the company shall go beyond adherence to regulatory framework . Our corporate structure, business and disclosure practices have been aligned to our Corporate Governance Philosophy.

Board compositionDiversified Expertise based Board drives NTPC:NTPC Board, at present, comprises of six full time functional Directors and the ManagingDirector who is also the Chairman of the company. Companys functional directors arehighly experienced professionals in their functional areas; provide directions to themanagement on operational issues, adoption of systems and best practices in management andoversight of compliance of various legal and other requirements.The Company has nine Independent Directors and two directors nominated by theadministrative ministry. The Independent Directors on the Board of the company are appointed by the Government of India through an elaborate procedure of selection whichencompasses induction of professionals and experts in relevant field through a SearchCommittee by the Government of India. Our Company believes that Independent Directors bring with them the rich experience followed in other companies resulting in imbibing the best practices followed in the industry.

REPORT ON CORPORATE GOVERNANCE CORPORATE GOVERNANCE RECOGNITIONS

In recognition of excellence in Corporate Governance, the following accolades have been conferred on NTPC in recent years: (i) 'ICSI National Award for Excellence in Corporate Governance - 2009' by the Institute of Company Secretaries of India (ii) 'Golden Peacock Global Award for Excellence in Corporate Governance' by World Council for Corporate Governance in the years 2007 and 2009 (iii) 'Golden Peacock National Award for Excellence in Corporate Governance' by World Council for Corporate Governance in the year 2008 (iv) SCOPE Meritorious Award for Good Corporate Governance for the year 2005-06.

BOARD OF DIRECTORS Size of the Board:NTPC is a Government Company within the meaning of section 617 of the Companies Act, 1956 as the President of India presently holds 84.5% of the total paid-up share capital. As per Articles of Association, the power to appoint Directors vests in the President of India.
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In terms of the Articles of Association of the Company strength of our Board shall not be less than four Directors or more than twenty Directors. These Directors may be either wholetime Directors or part-time Directors. The constitution of the Board is as under: (i) Seven functional Directors including the Chairman & Managing Director, (ii) Two government nominees and (iii) Nine independent directors as per the requirement of the Listing Agreement.

Composition:The Board of Directors have an optimum combination of executive and non-executive Directors. As on 31st March 2011, the Board comprised eighteen Directors out of which seven were whole-time Directors including the Chairman & Managing Director. Two Directors are nominees of the Government of India. The Board also has nine independent Directors who have been appointed by the Government of India through a Search Committee constituted for the purpose. The Directors bring to the Board wide range of experience and skills. The listing agreements with stock exchanges stipulate half of the Board members to be independent directors. We are compliant with Clause 49 (IA) of the Listing Agreement regarding composition of the Board of Directors.

Age limit and tenure of Directors:The age limit of the Chairman & Managing Director and other whole-time Directors is 60 Years. The Chairman & Managing Director and other whole time Directors are appointed for a period of five years from the date of taking over the charge or until the date of superannuation of the incumbent, or until further orders from the Government of India, whichever event occurs earlier. Government Nominee Directors representing Ministry of Power, Government of India retire from the Board on ceasing to be officials of the Ministry of Power. Independent Directors are appointed by the Government of India for tenure of three years.

Resume of Directors:The brief resume of Directors retiring by rotation and Additional Directors seeking appointment including nature of their experience in specific functional areas, names of companies in which they hold directorship and membership/chairmanship of Board/Committees is appended to the notice calling the Annual General Meeting.

Information placed before the Board of Directors:

The Board has complete access to any information within the Company. The information regularly supplied to the Board includes: Annual operating plans and budgets and any updates. Capital Budgets and any updates. Review of progress of ongoing projects including critical issues and areas needing management attention Annual Accounts, Directors' Report, etc. Quarterly financial results. Minutes of meetings of Audit Committee and other Committees of the Board. Minutes of meetings of Board of Directors of subsidiary companies. The information on recruitment and promotion of senior officers to the level of Executive Director which is just below the Board level and Company Secretary. Fatal or serious accidents, dangerous occurrences, and many more.

REMUNERATION OF DIRECTORS:As already stated under the heading Remuneration Committee above, the remuneration of the Functional Directors and sitting fee payable to the Independent Directors is decided by the Government of India. The Ministry of Power, Government of India has authorized the Board of Directors of the Company to determine the sitting fee payable to Independent Directors within the ceiling prescribed under the Companies Act, 1956. Accordingly, the Board decides the sitting fee payable to the Independent Directors. Presently, sitting fee of Rs. 15,000/- for each meeting of the Board, Committees of the Board and Group of Directors constituted by the Board from time to time, is being paid to each Independent Director.

Management - NTPC
Name Arup Roy Choudhury I J Kapoor D K Jain N NMisra Rakesh Jain Adesh Jain SantoshNautiyal RajibSekharSahoo Ajit M Nimbalkar Homai A Daruwalla SushilKhanna Name A K Singhal B P Singh S P Singh I C P Keshari KanwalNath A K Sanwalka S B GhoshDastidar M GovindaRao S R Upadhyay AnolNathChatterji Designation Chairman and Managing director Director (Commercial) Director (Technical) Director (Operations) Nominee Director Independent Director Independent Director Non Official PartTime Director Non Official PartTime Director Non Official PartTime Director Non Official PartTime Director Designation Director (Finance) Director (Projects) Director (Human Resources) Nominee Director Independent Director Independent Director Non Official PartTime Director Independent Director Non Official PartTime Director Non Official PartTime Director

(C) SHARE PRICES OF NTPC BETWEEN 2009 TO 2011

Month

Open High Low Close No. of Price Price Price Price Shares

* Spread No. of Total Turnover (Rs.) Trades (Rs.) H-L C-O

Mar 09 183.00 186.95 167.30 180.20 2,68,17,977 1,98,010 4,70,48,06,086 19.65 -2.80 Apr 09 181.00 205.50 176.10 190.15 3,19,77,409 2,58,173 6,12,81,89,159 29.40 9.15 May 09 193.70 222.75 185.15 215.45 2,89,81,161 2,46,613 5,90,44,57,302 37.60 21.75 Jun 09 219.00 233.00 186.55 195.05 5,15,93,394 3,49,639 10,97,94,43,337 46.45 -23.95 Jul 09 195.90 220.10 188.00 215.60 2,70,86,367 2,02,635 5,50,14,57,872 32.10 19.70 Aug 09 215.60 220.40 200.85 212.65 1,79,21,281 99,342 3,76,56,79,294 19.55 -2.95 Sep 09 214.00 215.30 203.55 213.70 1,16,13,142 77,688 2,42,61,61,926 11.75 -0.30 Oct 09 214.50 223.00 205.25 211.40 1,24,76,201 87,424 2,66,63,72,535 17.75 -3.10 Nov 09 211.00 218.85 201.65 209.75 91,46,687 60,978 1,94,06,40,537 17.20 -1.25 Dec 09 208.00 241.70 205.10 235.70 1,84,16,600 1,15,418 4,03,64,17,463 36.60 27.70 Jan 10 238.70 239.00 210.50 214.25 1,87,78,021 1,20,355 4,27,68,99,678 28.50 -24.45 Feb 10 216.10 216.90 196.10 203.00 1,40,51,854 99,760 2,87,87,17,454 20.80 -13.10 Mar 10 203.50 208.40 199.50 207.00 1,14,88,107 66,369 2,33,84,99,707 8.90 3.50 Apr 10 207.00 212.20 201.50 206.95 59,00,346 44,084 1,22,81,48,209 10.70 -0.05 May 10 207.00 208.50 190.40 202.00 66,68,183 55,914 1,34,32,22,111 18.10 -5.00 Jun 10 200.25 203.90 194.00 199.15 58,59,420 41,564 1,16,57,30,126 9.90 -1.10 Jul 10 198.45 205.80 197.30 198.60 71,89,404 44,817 1,44,36,32,413 8.50 0.15

Aug 10 200.50 200.50 192.90 195.75 33,67,058 37,503 66,06,07,172

7.60 -4.75

Sep 10 196.00 221.00 195.10 216.90 1,29,23,901 78,707 2,70,79,29,326 25.90 20.90 Oct 10 217.70 222.20 193.90 194.95 1,05,63,032 62,525 2,19,55,72,179 28.30 -22.75 Nov 10 196.60 197.45 175.20 184.25 76,71,384 67,823 1,43,74,84,229 22.25 -12.35 Dec 10 184.00 202.95 182.05 200.60 65,22,209 65,091 1,25,78,86,631 20.90 16.60 Jan 11 201.00 203.15 185.00 188.90 43,52,288 48,938 84,45,95,047 Feb 11 189.00 190.00 168.60 170.05 39,30,246 45,742 69,64,41,123 Mar 11 172.50 194.90 171.05 193.00 37,08,698 46,612 66,49,77,713 18.15 -12.10 21.40 -18.95 23.85 20.50

NTPCs stock price down 12.8 per cent since its coverage initiation CARE Equity Research initiated NTPCs coverage with Current Intrinsic Value (CIV) of Rs.246 per share and a valuation grade of 5, based on the current market price of Rs.183.5 on 29thApril 2011. The stock is down 12.8 per cent cumulatively, since then. However, the benchmark SENSEX in comparison has been lower by around 19.9 per cent.

FINANCIAL PERFORMANCE OF NTPC

Profit & Loss account of NTPC Mar '11 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised 57,796.64 313.47 57,483.17 2,338.65 0.00 59,821.82 38.55 36,865.61 3,605.44 1,811.41 2,228.31 611.86 -3,313.72 48,585.88 274.29 48,311.59 2,900.29 0.00 51,211.88 32.63 30,429.41 3,119.28 1,460.70 629.24 503.73 -2,645.28 44,532.70 236.00 44,296.70 3,229.20 0.00 47,525.90 32.70 29,122.40 3,009.00 1,149.00 583.00 454.80 -817.20 38,903.90 228.00 38,675.90 2,891.80 0.00 41,567.70 27.70 23,313.50 1,953.30 1,094.20 441.50 379.60 -293.90 ------------------- in Rs. Cr. ------------------Mar '10 12 mths Mar '09 12 mths Mar '08 12 mths

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Total Expenses

41,847.46 Mar '11 12 mths

33,529.71 Mar '10 12 mths 14,781.88 17,682.17 3,781.46 13,900.71 2,894.38 0.00 11,006.33 595.03 11,601.36 2,734.11 8,837.65 0.00 0.00 8,242.62 33,497.08 0.00 3,149.16 532.43 82,454.64 10.72 0.00 75.56

33,533.70 Mar '09 12 mths 10,763.00 13,992.20 2,095.30 11,896.90 2,494.90 0.00 9,402.00 1,302.90 10,704.90 2,611.60 8,092.50 0.00 0.00 6,789.60 33,501.00 0.00 2,973.70 504.70 82,454.64 9.81 0.00 69.62

26,915.90 Mar '08 12 mths 11,760.00 14,651.80 1,819.80 12,832.00 2,206.00 0.00 10,626.00 -638.30 9,987.70 2,517.60 7,469.90 0.00 0.00 8,108.20 26,888.20 0.00 2,893.90 492.90 82,454.64 9.06 0.00 64.11

Operating Profit PBDIT Interest P BDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Minority Interest Share Of P/L Of Associates Net P/L After Minority Interest & Share Of Associates Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

15,635.71 17,974.36 4,470.04 13,504.32 2,719.69 0.00 10,784.63 1,353.50 12,138.13 2,727.63 9,348.23 0.00 0.00 7,994.73 41,808.91 0.00 3,135.81 518.49 82,454.64 11.34 0.00 82.57

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MAJOR ACTIVITIES THAT OCCURS BETWEEN 2009 TO 201128-12-2011 25-10-2011 25-07-2011 10-05-2011 31-01-2011 12-11-2010 26-10-2010 26-07-2010 Others Quarterly Results Quarterly Results Audited Results & Final Dividend Quarterly Results & Interim Dividend Others Quarterly Results Quarterly Results

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21-07-2010 17-05-2010 13-03-2010 29-01-2010 29-12-2009 23-10-2009 27-07-2009 22-05-2009 16-03-2009 24-01-2009

Others Audited Results & Final Dividend Interim Dividend Quarterly Results Others Quarterly Results Quarterly Results Audited Results & Final Dividend To approve the Investment proposal Qtr. Results, Intrm. Dividend & Others

Analysis: From the time NTPC has started practising corporate governance in their working the share prices of this company has gone up year by year and the impact of this is reflected on the buying and trading of shares and it creates a good image in the market also.

CSR ACTIVITIES:NTPC believes in growth with a human face, and pursuing people-centred development. NTPC is a socially committed organisation and a socially responsible corporate citizen. It attaches great importance to discharging its overall social responsibilities to the community and the society at large where its projects and stations are located. In this regard Resettlement and Rehabilitation (R&R) program becomes an area of sharp focus, a program that addresses people affected directly or indirectly in the wake of the projects undertaken. Public Information Centre (PIC) To disseminate information on the project, PICs at Corporate Centre and the projects house an array of documents- survey reports, action plans, land records, policy etc. The PAPs are

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able to glean information on various facets of the project and also submit any query or grievance. Village Development Advisory Committee (VDAC) VDACs facilitates finalisation and implementation of RAPs in a participative manner. The representatives of PAPs, Gram Pradhan, Panchayat representative, Block Development Officer, other representatives of State Government NTPC and NGOs/CBOs, constitute it and meet regularly since the formulation of RAP till completion and closure of RAPs at respective projects. NTPC Environment PolicyAs early as in November 1995, NTPC brought out a comprehensive document entitled "NTPC Environment Policy and Environment Management System". Amongst the guiding principles adopted in the document are company's proactive approach to environment, optimum utilisation of equipment, adoption of latest technologies and continual environment improvement. The policy also envisages efficient utilisation of resources, thereby minimising waste, maximising ash utilisation and providing green belt all around the plant for maintaining ecological balance. Pollution control systemsWhile deciding the appropriate technology for its projects, NTPC integrates many environmental provisions into the plant design. In order to ensure that NTPC comply with all the stipulated environment norms, various state-of-the-art pollution control systems / devices as discussed below have been installed to control air and water pollution. On-line data base managementIn order to have better control on pollution and to achieve effective environment management in and around NTPC stations, it is imperative to have an on-line, reliable and efficient environment information system on the plant operational and environmental performance parameters at all three levels i.e generating Stations, Regional Headquarters and Corporate Centre. In consideration of the above, a computerized programme, namely "Paryavaran Monitoring System" - PMS, which could provide reliable storage, prompt and accurate flow of information on environmental performance of Stations was developed and installed in NTPC. This software facilitates direct transfer of environment reports and other environment related information from stations to the Regional Headquarters and Corporate Centre. The PMS has already been implemented at Corporate Centre, the Regional Headquarters and most of the Stations. This system has helped in achieving continuous improvement in NTPC's environment performance through improved monitoring and reporting system by using the trend analysis and advanced data management techniques.
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Community DevelopmentThe concept of Corporate Social Responsibility is deeply ingrained in NTPC's culture. Through its expansive CSR initiatives NTPC strives to develop mutual trust with the communities that surround its Power Stations.

Right from social to developmental work of the community and welfare based dependence, to creating greater self reliance; constant endeavour is to institutionalise social responsibility on various levels. NTPC's CSR-CD Policy establishes NTPC foundation as a trust and initiating scheme for economic self reliance of physically challenged persons (PCP).

NTPC's approach towards CSR, further articulated in the corporate objectives on sustainable power development, is as follows:

To contribute to sustainable power development by discharging corporate social responsibilities. lead the sector in the areas of resettlement and rehabilitation and environment protection including effective ash-utilisation, peripheral development and energy conservation practices.

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Impact of corporate governance

The results reveal that: (1) A higher level of institutional ownership. (2) More independent members on the board of directors. These results suggest that firms with stronger corporate governance mechanisms are less likely to make misleading earnings adjustments and, as a result, they have lower incentives to cease reporting manageradjusted earnings numbers in the presence of SEC scrutiny. 3.) Interestingly, the presence of strong corporate governance mechanisms appears to decrease investors' reliance on adjusted earnings measures. An analysis of the market's reaction to earnings announcements indicates that both a high proportion of institutional ownership and a high percentage of outside directors are associated with a lower market reaction to non-GAAP earnings.

THANK YOU

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